Rent to own properties unable to get Fannie Freddie Mortgage?

[John Becker]

I am doing the BRRRR strategy, and I have a great clean property that I was going to cash out finance. I was just told by my lender, that since my lease, had an addendum for Rent to own, that I could not get my mortgage approved without a form deleting the Rent to own provision.

The mortgage guy couldn't explain why this was the case, other than  if I were to sell the home, only the current tenant could buy it.?

Any lenders out there who can explain this condition? Is this accurate? Should I no longer offer the rent to own on my BRRRR properties?

Thanks

[Chris Mason]

Originally posted by @John Becker:

I am doing the BRRRR strategy, and I have a great clean property that I was going to cash out finance. I was just told by my lender, that since my lease, had an addendum for Rent to own, that I could not get my mortgage approved without a form deleting the Rent to own provision.

The mortgage guy couldn't explain why this was the case, other than  if I were to sell the home, only the current tenant could buy it.?

Any lenders out there who can explain this condition? Is this accurate? Should I no longer offer the rent to own on my BRRRR properties?

Thanks

If the rent to own provision is dated prior to the closing of the loan you are seeking, and the lender is for whatever reason compelled to foreclose, a zillion lawyer fees would be incurred by the lender when a pro bono tenant's rights lawyer shows up to claim that the tenant's claim to the property is in position ahead of the lender's claim to the property because it predates it. The lease was signed before the mortgage, so the mortgage lender is in line after the tenant, the claim would essentially be.

The guideline specifically says...

Note the word used is "could," not "would." It's not relevant that you or I might disagree with what a lawyer should claim and which way a judge should rule. The cheap gov't subsidized money wants clean title and unencumbered real estate. 

Offer the rent to own after you're done financing/refinancing the home for X years, where X equals the length of the lease. 

I feel like some disproportionate % of posts on BP are from folks that stepped on one of financing mines that comprise the BRRRR minefield...